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Revival of banking sector in Iraq &
Kurdistan Region
6.8.2011
By Shwan Zulal - ekurd.net |
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August 6, 2011
Kurdistan Region and Iraqi economists' were
convinced that Iraq was immune from the recent
Global banking crisis after Lehman's collapse on
Wall Street. The Kurdish banking sector was close to
none existence at the time, therefore it was thought
that Iraq would not be affected, but the reality was
far from it. Looking at the investment figures from
last couple of years and comparing it with this
year's can be a testament as investment in Iraq and
Kurdistan is on track to double as the world economy
recovers. It is needless to say that the security
situation in Iraq has improved which has also
contributed to improving investors sentiment.
Traditionally Iraq has had a private banking sector
that was nationalised in mid 1960s and ever since
the state owned banks have dominated the market.
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Although in the last two
decades, there has been a revival of the private
sector but so far they have not won the public's
trust and their business is on the margins and
largely consists of retail deposits. However, it has
to be said that theses Banks are the main staple
diet of Iraqi stock exchange and they have attracted
foreign investors in droves, as the potential for
growth is enormous.
Kurdistan Region has been running its own affairs
for over 20 years now and the banking problems are
even greater than Iraq's. This is partly due to the
fact that Kurdistan Region remains part of Iraq and
never had fiscal and financial regulatory
independence. However, the other portion of the
blame can be directed at the Kurdistan Regional
Government KRG's polices because it has failed to
grasp the need for sound banking sector in the
Region.
There are more than 50 private banks operating in
the region mainly from Middle-Eastern countries like
Lebanon and they have somewhat filled the gap in the
market, however, economists believe they have not
added much value to Kurdistan region's economy.
Moreover, there are Kurdish private banks in the
Region but they remain largely unnoticed with
limited operations.
In the latest development this week; Iraq, Iran and
Turkey agreed to establish a bank as a joint venture
with an initial capital of $200 billion, Fars News
Agency reported. This Bank would give businesses in
Iraq and elsewhere accesses to, much-needed
financing but it remains to be seen if Kurdistan
Region Business will have similar access to the
funds.
Kurdish Public is very sceptical about the local
banks due to lack of rigours regulations and proper
financial authorities to give the banks heath
checks. The lack of regulation and historically weak
banking culture has promoted cash economy,www.ekurd.netwhich
has hindered the investments and funding needed to
rebuild the country. The failure of policy and lack
of political will to revamp the banking sector in
the Region has had a significant impact on the pace
of development.
Many Kurdish officials complain that despite having
very lax regulation frame works and genoures tax
incentives for foreign investors, they are still
struggling to attract the amount of inverters they
would like to come to the Region. The absence
effective banking has undoubtedly contributed to the
lack appetite by foreign investment.
Establishing a strong banking sector is a key to a
successful economy. It would help the government in
measuring and quantifying economic activity in the
Region. Relying on cash economy may be convenient
for some businesses, but it makes the KRG almost
blind as to how to target investment and tackle
fiscal challenges on a macroeconomic level.
Banking and the introduction of fiscal planning must
take priority if the KRG intend to become a credible
political force in the region and a government that
investors can trust. Investors like certainty and do
not want to invest in an environment that the rules
and regulations are not clear. Failing to recognise
the need for a strong banking sector and ignoring
the need for the Region to enter the world financial
markets would only contribute to its exclusion from
the much-needed financing and investment.
Shwan Zulal
is a Kurdish Blogger, a regular contributing writer
for ekurd.net, interested in political and legal
Reform in Kurdistan, KRG, Iraq and current Kurdish
affairs, including oil exploration companies and
relevant legislations. You may visit Zulal's website
at http://kurdishviews.blogspot.com/
Copyright © 2011 ekurd.net
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